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Circuit Judges Put Spin on Patent Fee Shifting

Tony Mauro / National Law JournalJudge Timothy Dyk, U.S. Court of Appeals for the Federal Circuit

SAN FRANCISCO — The U.S. Court of Appeals for the Federal Circuit didn’t have much to say Tuesday when the Octane Fitness case on fee shifting returned from the U.S. Supreme Court.

But two individual members of the court, sitting as trial judges in the Eastern District of Texas, have added some gloss to the high court’s new “exceptional case” standard in recent weeks.

Judge Timothy Dyk denied a motion for fees in an Aug. 6 opinion, noting that even under Octane Fitness, “awards of attorney’s fees in patent cases should be reserved for rare and unusual circumstances.”

And Judge William Bryson turned down a fee motion in May, holding among other things that getting past summary judgment, while not dispositive, would indicate that a case is not objectively baseless.

UC-Hastings College of the Law professor Robin Feldman, an advocate for more liberal fee shifting, said she found it “unseemly” for Federal Circuit judges to continue making law on the exceptional-case issue, given that the Supreme Court has prescribed broad discretion for district judges on the issue. “The Supreme Court said to the Federal Circuit, ‘You are wrong, and you are out of the game,’” Feldman said. “In light of that, it is unseemly for Federal Circuit judges to be reentering the game by sitting as trial court judges.”

Feldman acknowledged that federal judges routinely visit other courts. In this case, she said, “the concern for me would be the appearance that Federal Circuit judges are trying to resist Supreme Court precedent by moving to lower courts to shape the decision making.”

Knobbe, Martens, Olson & Bear partner Joseph Re said he found that criticism unfair, given that Federal Circuit judges have been criticized in the past for not getting more involved with district court work. “The district court judges say, ‘Why don’t you come on down and see how difficult the job is?’” said Re, who’s a member of the Federal Circuit Advisory Council.

In the meantime, a subsidiary of patent holding company Acacia Research Group is citing both Dyk’s and Bryson’s opinions in an exceptional-case fee motion to be argued next month before U.S. Magistrate Judge Paul Grewal of San Jose.

“A number of general guidelines have been discerned by Judge Dyk from the Octane court’s treatment of Section 285 that guide this court,” John Edmonds of Collins, Edmonds, Pogorzelski, Schlather & Tower wrote in an Aug. 20 brief to Grewal in Site Update Solutions v. Newegg.

McDermott Will & Emery partner Yar Chaikovsky said he will argue that, irrespective of the cases Edmonds is citing, Site Update Solutions LLC’s case against Newegg Inc. is an exceptional case.

The Supreme Court on April 29 threw out the Federal Circuit’s test for determining whether a case merits fee shifting under Section 285 of the Patent Act. Calling the old test too “rigid and mechanical,” the court ruled in Octane Fitness v. ICON Health & Fitness that an exceptional case is one that “stands out from others with respect to the substantive strength of a party’s litigating position (considering both the governing law and the facts of the case) or the unreasonable manner in which the case was litigated.” In a companion case, the high court instructed the Federal Circuit to review fee-shifting decisions deferentially.

The Supreme Court remanded both cases to the Federal Circuit, which requested new rounds of briefing. On Tuesday it followed Octane Fitness’ recommendation and remanded that case to U.S. District Judge Ann Montgomery to exercise her discretion.

In doing so, Judges Pauline Newman, Haldane Mayer and Alan Lourie mostly quoted directly from the text of Octane Fitness, though they also pointed out that district judges may still deny fees even when finding a case exceptional.

Bryson and Dyk took on trials in Texas federal courts earlier this year, after the Supreme Court had granted certiorari in Octane Fitness but several months before the court ruled.

Following trial in Bianco v. Globus Medical, Bryson denied Globus Medical Inc.’s fee motion under the old Federal Circuit framework April 17, saying Sabatino Bianco’s claim to inventorship of surgical devices was neither objectively baseless nor brought in bad faith. Asked to reconsider two months later following Octane Fitness, the judge came to the same result. “The inventorship claim in this case is a fairly routine example of a claim that did not prevail,” Bryson wrote. “It is not the exceptional case of a claim that is so plainly non-meritorious that no reasonable attorney could realistically expect success on the merits.”

A few months later, Intel Corp. asked Dyk to award fees against Stragent LLC, an opponent Intel described as “a habitual litigant that makes and sells no products.” Jurors rejected Stragent’s claims in three hours, but it cost Intel $9 million to defend the case, Perkins Coie partner Chad Campbell wrote in Intel’s fee motion.

In Stragent v. Intel, Dyk sketched out several broad guidelines flowing from Octane Fitness. Fee shifting should be “reserved for rare and unusual circumstances,” he wrote. Courts should look at the case as a whole, while individual arguments or actions that are sanctionable should be treated separately. And the winning party’s conduct should be taken into consideration when deciding whether to award fees against the loser.

With those guidelines in mind, Dyk concluded that no fees were warranted against Stragent. “Intel’s motion is primarily based on the fact that Stragent made losing arguments,” Dyk wrote. “That is not a ground for finding a case exceptional. Every case will have a loser.”

While Stragent’s theory of infringement “was certainly a weak one,” Intel didn’t move for summary judgment, Dyk wrote. “This suggests that Intel did not always view Stragent’s infringement position as frivolous,” Dyk wrote. “There is little injustice in forcing Intel to bear its own attorney’s fees for defending a claim it did not challenge on summary judgment.”